Jobs and Voters Exit Unreformed New York
By Steven MalangaWhen David Paterson ascended to the governor's position in New York State in 2008, he recounted how he began hearing from old friends who had left the state years earlier but were now getting back in touch with him to offer their congratulations. As Paterson described it, these old friends told him, "'Good luck in New York State, but we can't pay the taxes. The opportunities aren't there.'"
Yesterday, the electoral tidal wave that swept over the country only touched down lightly in New York, our third most populous state. In the race that counts most for change in the Empire State, an uncompetitive gubernatorial election, Democrat Andrew Cuomo, who ran on an agenda of timid reforms, easily defeated the unpredictable Republican nominee, Carl Paladino. Now Cuomo must try to change New York by operating from within a Democratic Party that is dominated by the very forces, public unions and social advocacy groups, whose spending agenda has helped run the state into the ground.
In this season of political turmoil, New York is an object lesson in how change is never inevitable but has to be fought for and earned. Paterson shouldn't count on his friends moving back into the state any time soon.
A recent study using an innovative jobs-database neatly sums up the dire situation: The Empire State is losing jobs rapidly to other states, and has been for years. According to an analysis of the National Establishment Time-Series (NETS) Database by the Manhattan Institute's Empire Center, New York gained some 272,000 jobs from relocations into the state from 1993 through 2008, but lost more than 392,000 jobs to outmigration during that same period. That was largest net loss of any state.
Job migration reflects an overall environment that isn't friendly to employment growth, as the NETS data suggests. New York is also near the bottom among the states in the balance between economic creative destruction, losing some 650,000 more jobs to closures, or "deaths," than it gained from firm startups, or "births" during the period studied. That's one reason that the state's overall job creation has lagged the country for years. Not surprisingly, executives consistently rate New York as one of the worst places (if not the absolute worst place) to start or relocate a business.
One reason is certainly the state's high tax burden. In a just-released ranking by the Tax Foundation, New York is judged as having the worst business tax climate in the country. Among the problems, according to the foundation, is the third most burdensome income tax in the country, the ninth worst corporate tax, and the country's worst property taxes.
There's not much to like about New York these days. In an April report by the American Legislative Exchange Council titled "Rich States, Poor States," New York ranked last in economic outlook because of its combination of high taxes, big debt, and the size of its government relative to its population.
New York has been able to sustain itself despite its enormously high spending and tax burden because of the enormous revenue generating capacity of Wall Street, which accounts for just 3 percent of the state's jobs but 20 percent of state taxes as of 2008. While a host of other industries led by manufacturing, wholesaling and insurance have fled the state, Wall Street stuck around because it could afford to. While that's kept New York City and some of its suburbs viable, one-fifth of housing in Buffalo is abandoned. Even Eliot Spitzer as a gubernatorial candidate compared parts of upstate New York to Appalachia.
But even financial firms are becoming far more cost sensitive in the post-meltdown age. When Albany proposed a new $900 million tax on hedge funds this year, neighboring states heavily courted the industry's biggest players, forcing even New York's notoriously spendthrift politicians to back down on a tax hike.
Now New York also faces the prospect of neighboring New Jersey becoming more competitive for business under Gov. Chris Christie. Jersey, which had one of the country's lowest tax burdens back in the 1960s, benefited for years from firms migrating from New York, including a host of Fortune 500 companies that left Gotham.
But Jersey's own era of high taxes and growing regulation gradually made it a net job loser, too. Christie aims to change that, if he can tame the state's budget. Merely by not raising taxes this year, Jersey dropped out of the bottom spot in the Tax Foundation's most recent business climate survey, the spot now occupied by New York.
Running on reform is easy. Governing that way is not. Before Christie, Democrat Jon Corzine won election in Jersey in 2005 on a reform agenda promising many of the things Cuomo offered voters, including spending and tax caps and more reasonable public employee pension costs. But the ‘reforms' that ultimately emerged from Corzine were feeble and so full of loopholes that they accomplished little, and voters weren't fooled.
The next year, Eliot Spitzer won New York's governor's race also promising a reform agenda, which lasted about two weeks. Because of the spectacular nature of Spitzer's demise when he was revealed to be client 9 of an escort service, we forget that he had such a bad start governing that he was well on his way to becoming New York's worst governor in decades, which is saying something.
States like California, New Jersey, Illinois and New York don't merely require a little tinkering, or a bit of public policy window dressing. They need big change that upsets apple carts and reestablishes the balance between the public and private sectors. Once our most prosperous state, New York lost that balance decades ago. It will take more than another set of reform promises for businesses and residents to stop packing the moving vans.
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